Editorial review: 8 October 2026. Recommendations on discounts and occupancy have been qualified, and an unsupported historical savings figure has been removed. The original publication date is retained.
What is Revenue Management?
Revenue Management, formerly called Yield Management, has its origins in the airline industry and it all started in 1972 when Kenneth Littlewood was working for BOAC / British Airways and developed the foundations of revenue management by creating what is known as the Littlewood rule which was subsequently implemented by American Airlines in the 1980s as a result of the liberalization of the sector in the US.
This rule relates the sales capacity of a service to the revenue it can generate when we have two different rates associated with that same service, depending on the foreseeable demand of the most expensive fare. Since then, this strategy has also begun to be applied by hotels, which used it to make forecasts of room reservations and thus estimate their occupancy at a certain time.
Revenue Management is the sum of techniques and strategies that a company applies to be able to sell the right product / service, to the right customer, at the optimum time and at the most profitable price.
Today Revenue Management has become a complex task for hotels, which is not only the application of discounts or price changes, but is the sum of strategies that a hotel develops to obtain the maximum possible profit per room. Therefore, it should take into account not only price but also a multitude of factors that can influence the final result, such as the reputation of the hotel, the opinions of customers, the benefits offered to customers compared with the competition, the prices, the adequate management of the hotel’s social media profiles, the tariffs, etc.
What are the benefits of Revenue Management for a Hotel?
The main objective of Revenue Management is to obtain the greatest possible profit per room, but there are also other benefits derived from the good organization of an establishment:
• Increase profits through an optimal occupancy forecast and adequate price policies
• Manage the risk of overbooking and its potential costs
• Improve workflows and optimize the human resources involved in the management of the establishment
• Increase rates by constantly studying the competition, with the help of existing technological tools in the market and the intelligent use of the different distribution channels
Discounts and special rates are tools to evaluate in the context of demand, costs and the overall offer. Their contribution depends on the hotel and the booking situation; they are not automatically the action with the greatest potential. Options to consider include:
Encourage Upgrades and Cross-selling
When the client has booked a room, we can send him personalized messages before his stay to offer him a room of a higher category or additional services that he can enjoy during his stay and thus increase revenues and provide a better customer experience. Price incentives may be appropriate, but upgrades and cross-selling should be assessed against their incremental costs, availability and contribution to margin. A relevant additional service can add value without requiring a discount in every case.
Study the competition
It is essential to know our position in the market. For this reason, it is very important to observe the competition and to know at all times what services, what rate plans and revenue management strategy it follows, in order to offer an optimal service at the right price to our customers.
Evaluate the contribution of a discounted reservation
A full hotel is not necessarily the most profitable hotel. Before offering a discount, assess the reservation’s expected contribution after distribution, payment and incremental servicing costs, as well as cancellation risk and any higher-value demand it could displace. A lower rate may be appropriate in some circumstances; the objective is sustainable contribution, not occupancy at any price.
Develop a Loyalty Strategy
Revenue management, together with an appropriate CRM strategy, will allow us to understand a customer’s lifetime value and offer discounts (mainly as upgrades and cross-selling) to high-value customers and in this way strengthen the client’s relationship with the brand / establishment.
Offer Packages
The creation of packages made up of rooms and other external products also represents a strong incentive for customers. Depending on our geographical position and the different interesting activities in our area, we can reach agreements with local companies offering different products or services, such as transport, restaurants, guides, entrance to museums, etc. and in this way meet needs beyond accommodation and provide a pleasant customer experience.
